Daily Management Review

Greenlight's Second-Quarter Returns Crashes Primarily Because Of Tesla


Greenlight's Second-Quarter Returns Crashes Primarily Because Of Tesla
Greenlight Capital fund owned and managed by billionaire hedge fund manager David Einhorn underwent heavy second-quarter losses because of the sharp losses in Tesla shares. Einhorn had bet against a sharp rally in the shares of the company, he told investors. He also maintained the low outlook for the electric car maker.
Einhorn wrote in a letter to investors that in the first half of 2018, Greenlight lost 18.3 percent and he added that the “second biggest loser” during that period was that of Tesla shares, which rose 29 percent in the last quarter.
Following the letter, the investors were informed by Einhorn about the fall in the returns of the fund. According to investors, the fund has dropped by 18.6 per cent so far this year with a drop of 0.4 per cent this month.
Einhorn wrote in the note about the fall in residual values for Tesla’s Model S and he noted that he was frustrated by his own Model S sedan because of its problems in the power windows and touch screen problems and informed that he had disposed off his vehicles at the end of the lease.
There were modest reviews and bad publicity for the company’s Model 3 which is a more affordable one and Einhorn said it was “probably having a negative impact on the brand.” While criticizing the plan to rush cars to customers, he expressed doubts that the car could be “produced profitably anytime soon, if ever”.
After Tesla Chief Executive Elon Musk said an analyst asked a “boring boneheaded question” during the company’s last quarterly earnings call, Einhorn described Musk “erratic and desperate”.
"Tragic," Elon Musk tweeted as he responded to Einhorn's comments. “Will send Einhorn a box of short shorts to comfort him through this difficult time,” Musk tweeted.
Musk is regular at Twitter that he uses to criticize people who have opposing views and thoughts and his comments have brought in a backlash from investors. Musk had to apologize to British caver Vern Unsworth earlier this month after making insulting comments that resulted in fal in shares of the company.
Einhorn and another funds manager Jim Chanos are among the severest critics of Tesla and they have accused the electric carmaker of putting “dangerous products” on the road and have accused the company of burning cash
Einhorn’s stubbornness has been criticized by his own investors who have also accused him of not parting with information on how much the fund had lost on the bet and failing to share some specific ideas for enhancement of the portfolio’s long-running underperformance.
While admitting that in the last three years, the fund’s had have been “far worse than we could have imagined”, Einhorn acknowledged his mistakes and said added that there are a number of investors who have run out of patience and was seeki9ng back their investments. Greenlight had assets of roughly $4 billion according to a filing at the end of March.
“Right now the market is telling us we are wrong, wrong, wrong about nearly everything,” he wrote. However, he added that he still liked his market position. “Looking forward from today we think this portfolio makes a lot of sense,” he said.